Big banks usually offer online services, but online banks are different. You won't find a branch office or even a proprietary ATM in most cases. Still, online banks are beginning to give traditional institutions a run for their money, because of the benefits they provide.
If you think that your traditional bank offers everything you'll find at an online institution, consider that traditional banks are notoriously bad at online services. But online banks are born online, and they don't try to be all things to all people.
If trusting your finances to a bank that only exists in the virtual world seems counterintuitive and risky, consider some of the reasons to take a second look.
With traditional banking, you need a branch office for at least some transactions. If there's no branch nearby, you're out of luck. And who hasn't raced to make it to the bank before closing on Friday? Online banking has no brick-and-mortar branch offices, but they're accessible wherever you have an Internet connection. Use your computer to open accounts, make deposits, transfer money, pay bills, view and print statements, and even order checks.
Mobile apps take online banking anywhere, and security is at least as strong if not better than at the main website, according to Bankrate.com. Mobile banking might not have as many features as the main website, but that's not much different from any other mobile app. Consider apps a convenient extension of the bank's website, not the primary point of contact.
Alerts, Not Surprises
With alerts, you'll know sooner instead of later when something's amiss. Email and text notifications may be triggered by odd or fraudulent account activity such as duplicate transactions, according to Bankrate. When a balance drops below a predetermined level, alerts let you put the brakes on spending before the account drops critically low.
Alerts give you more control over your money in less time. Instead of receiving a notification in the mail days after the questionable activity happened, online banking has the potential to let you know immediately.
Better Interest Rates
Interest rates are another way that online banking might surprise you. This comes at a time when traditional banks seem to be moving in the opposite direction with dwindling rates on interest-bearing accounts.
Jennifer Waters for MarketWatch explains that online certificates of deposit, money market, checking, and savings accounts typically earn higher interest, and loans enjoy lower rates. Without shareholders and high overhead, online banks don't need to make life harder for their customers.
MarketWatch further explains that in 2012, traditional banks increased fees for ATM transactions, overdrafts, and monthly maintenance. Conversely, online banks showed little if any fee increases.
The ATM fee concern is a valid one, since you aren't likely to find an ATM for your online bank, but this is another area of misconception. Where big banks charge fees every time you use another bank's ATM, online banks might not. Kiplinger says many, and perhaps most, online banks reimburse those fees to their customers.
If you think online banks are a step down from traditional banking, the truth might surprise you. And once you've made the switch to online, try managing your finances through an online service like Mint.com. You may never go back to brick and mortar again.